Previous theories have argued that incorporation tends to reduce both audit quality and audit fees (Dye, 1994, 1995). In contrast, this paper shows that the theoretical effects of incorporation depend on three factors. If most clients are financially healthy (and pose little risk of litigation),...

Empirical results presented in this paper indicate that large auditors are more accurate than small auditors. DeAngelo (1981) has argued that large auditors have more incentive to maintain a reputation for accurate auditing because an audit failure may lead to a loss of rents due to auditor...

A series of corporate failures in which auditors failed to warn investors about impending bankruptcy has led to widespread public criticism of the auditing profession. This paper evaluates the accuracy and information content of audit reports for 976 UK publicly quoted companies between 1987-94....

Following the Sarbanes-Oxley Act, self-regulated peer reviews at accounting firms were replaced by independent inspections conducted by the Public Company Accounting and Oversight Board. Critics of self-regulation had argued that the peer review program lacked credibility. This paper tests...

Contrary to public expectations, companies usually receive clean audit opinions shortly prior to failure. This study examines whether audit reports in failing companies are affected by auditor dependence or opinion shopping. I find audit fees, auditor size, auditor-client tenures and dominant...

This paper tests whether SEC registrants engage in opinion shopping and examines the role of audit committees when auditors are dismissed (1996-98). There are three main findings. First, companies strategically dismiss incumbent auditors if they are more likely to issue unfavorable audit...

This paper shows that unfavourable audit reports cause significant falls in executive compensation. Economically, the effects are larger than accounting and market performance measures, and are particularly strong when: reports are modified for issues other than going-concern uncertainties; or,...

This paper reviews the literature on audit quality and auditor switching to assess different countries policy regimes. It argues that policy-makers should limit managerial influence over auditor switching rather than reduce auditors' economic dependency on clients. In particular, the paper...

This paper analyzes audit firm supervision since the Public Company Accounting Oversight Board (PCAOB) began conducting inspections. First, we find that audit clients do not perceive that the PCAOB's inspection reports are valuable for signaling audit quality. Second, we document that the...